When a small-cap like Hurricane Energy (LSE:HUR) experiences a major share price hike, I’m intrigued and want to learn more. At current levels, is the Hurricane Energy price an opportunity I should consider for my holdings? Let’s take a closer look.
Hurricane Energy share price soars
As a quick reminder, Hurricane is an oil and gas exploration business. It focuses on making discoveries in naturally fractured basement reservoirs. These are usually prolific producers of oil and gas globally, however, they are a new play on the UK Continental Shelf, which is the region of waters surrounding the UK.
So what’s the current state of play with Hurricane Energy shares? Well, as I write, they’re trading for 8p. At this time last year, the stock was trading for just 2p, which equates to a return of 300%!
So why has the Hurricane Energy price soared? I believe the current market for oil, coupled with the company’s impressive performance in recent times has definitely boosted shares. In July, Hurricane repaid an outstanding convertible bond worth £78.5m, which made the firm debt-free. This is a rare occurrence for small oil and gas firms like Hurricane to be totally debt-free. Furthermore, as of 31 July, it had $89m worth of net cash on the books.
The investment case
The recent oil and gas markets have been kind to many businesses in the industry, and this includes Hurricane Energy. As part of the operational update it provided earlier this month, all signs pointed towards 2021 being a transformative year for the business.
Hurricane reported that, due to stable oil prices and rising demand, it managed to generate $135.7m of free cash flow. This helped to post a profit of $18.2m after tax. This is a major turnaround when comparing figures to the previous year when Hurricane posted a mammoth loss of $625.3m.
It is worth noting that despite a bullish oil market, macroeconomic factors are playing their part. Soaring inflation, and the rising cost of materials, has had an impact on costs for Hurricane. Despite the impressive figures noted above, costs to produce a barrel of oil did increase to $28.20 this year. These issues could affect profitability moving forward.
What I’m doing now
Things look good right now for Hurricane Energy. The results I’ve noted above have boosted the Hurricane Energy share price in recent months. Existing shareholders could be in for a lucrative year ahead if this upward momentum continues.
After taking everything into account, I’ve decided I would be willing to open a small position in Hurricane shares. They look decent value for money on a price-to-earnings ratio of just eight. Furthermore, at 8p per share, the risk to reward ratio looks very low for me.
If Hurricane shares were to struggle, I wouldn’t have lost much money based on current levels and my investment. A big part of my investment strategy is to look for small-cap stocks doing well that could turn into major players in the long term. I wouldn’t be surprised to see the Hurricane Energy share price continue on an upward trajectory, at least in the short term.